EDITORIAL: Japan Must Stress Need For Anti-Deflation Drive

TOKYO (Nikkei)--Finance ministers and cental bank governors from the Group of 20 major nations wrapped up their two-day meeting in Moscow on Saturday.

A joint statement released after the gathering showed some understanding toward Japan's economic policies, which feature bold monetary easing, and refrained from criticizing Japan by name for allegedly guiding the yen lower.

Strong monetary easing is essential for Japan to exit its prolonged spell of deflation and achieve a full economy recovery. The government of Prime Minister Shinzo Abe should continue to strenuously emphasize the need for anti-deflation measures in Japan to the international community, while paying attention to lingering discontent among the other G-20 nations.

The correction of the yen from its past excessive strength has continued in foreign exchange markets, a trend fueled by the Bank of Japan's stronger monetary easing moves in line with the Abe government's wishes.

Before the G-20 meeting, there had been criticism from some European and emerging-market countries that Japan was intentionally driving down the value of the yen.

No Finger-Pointing

In their joint statement, the G-20 nations said they will seek to avoid "competitive devaluation" of currencies, while carefully refraining from referring to any specific nation or region. They also said, "Monetary policy should be directed toward domestic price stability and continuing to support economic recovery."

As a general rule, foreign exchange rates must be determined in free and flexible markets. If nations and regions are too quick to engage in competitive currency devaluation, the stability of the global economy and financial markets would certainly be undermined.

There are various factors behind the recent weakening of the yen, including the easing of the European debt crisis, a pickup in the U.S. and Chinese economies, and the expansion of Japan's trade deficit. It is therefore natural for Japan to dispute criticism abroad that the country is guiding the yen lower.

Finance Minister Taro Aso and BOJ Gov. Masaaki Shirakawa explained at the G-20 meeting that the aim of Japan's monetary easing is to end deflation as soon as possible. The pair also said Japan's economic recovery would have a "positive impact" on the global economy. Japan must continue trying to make this clear to other G-20 nations.

Points Worth Considering

Japan also needs to reflect on some points. It is true that the Abe government has put pressure on the BOJ for aggressive monetary easing and repeatedly talked about specific exchange rate levels of the yen. The Abe government should therefore be careful not to say or do anything that could cause a misunderstanding.

The Abe government should also quickly work out and implement growth strategies, including getting Japan to participate in the proposed Trans-Pacific Partnership trade agreement, without merely relying on monetary easing and fiscal spending to boost the economy.

Needless to say, the Abe government must continue making fiscal consolidation efforts aimed at the medium and long-term.

The U.S. has also come under criticism from some countries for its easy monetary policy aimed at shoring up the flagging economy. Full attention must be paid to the negative spillover effects of monetary easing by developed nations on others, such as rises in currency values and asset prices in emerging markets due to the inflow of massive funds from developed nations.

(The Nikkei, Feb. 18 morning edition)

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